Hoyer Delivers Keynote Address on Entitlement and Health Care Reform

WASHINGTON, DC – House Majority Leader Steny H. Hoyer (MD) delivered the keynote address at a Bipartisan Policy Center forum, “Unprecedented Federal Debt: Putting Our Fiscal House in Order,” hosted by former Senator Pete Domenici at the St. Regis Hotel. Below are his remarks as prepared for delivery:

“If I were to guess the single most lasting lesson of our economic crisis, and if I were to spell it out in just five words, I would say: this is what debt does.

“The recklessness we have seen from so many consumers, and from Wall Street, found an echo in the recklessness of the federal government. For years, our government has lived far beyond its means—and we see now that when we over-rely on debt, things can turn very ugly, very quickly. If a fiscal meltdown comes, there will be no one to bail out America.

“What we face is not just an accounting issue, but a moral issue. And turning a blind eye to our long-term challenges would not only be irresponsible—it would be dangerous to our nation’s continued success. Those of us who know our government must invest in national security, health care, education, energy independence, infrastructure, scientific research, and other priorities have a critical stake in helping us take on these challenges.

“Today, I want to talk about the hard decisions it will take to get our fiscal house in order and control the spiraling costs of our entitlement programs, especially Social Security, Medicare, and Medicaid. But I come here today with a good deal of optimism, because never in recent memory has the American public been so focused on the danger of debt and so ready to turn responsibility into a powerful political issue. As a result, we have a very short window of time in which to act—and the sooner we act, the easier we will find solutions, both politically and substantively.

“I think we all understand how we got here. In 2001, when President Bush took office, America had a projected ten-year surplus of $5.6 trillion. Today: record deficits and debt. Three things got us from that point to this. First, massive tax cuts, which brought government revenues down from 20.9% of GDP when President Bush took office, to 16.5% of GDP when President Obama took office. Second, a spending explosion, including massive increases in defense spending and a new prescription drug entitlement; over the same time frame, total government spending went from 18.4% of GDP to 24.9% of GDP. Third, and most recent, is the economic collapse and the deficit spending that came in response.

“Today, we are looking at a fiscal year 2009 deficit of $1.7 trillion. And our debt has never been higher: collectively, we owe $11 trillion dollars, and more than $3 trillion of that debt is held by foreign lenders, especially China—which, as of February of this year, held $744.2 billion in U.S. Treasury bonds. Hundreds of billions of dollars every year—hundreds of billions that could strengthen our national defense, or help young Americans go to college, or fund research on the next energy breakthrough—will instead go to interest payments, merely to keep us solvent.

“But as bad as our immediate fiscal problems are, the structural problems are greater. If we continue on our current course, by 2025 the debt held by the public will exceed the historical high of 109% of GDP, reached at the end of World War II. By then, the money we spend on interest on that debt, along with the ‘big three entitlements’ will equal 18.5% of GDP—and that spending will consume virtually all of our revenues. The cause is not merely spending that grows on autopilot, but demographic changes that will see the retirement of the Baby Boomers and a continued decline in the ratio of workers to retirees.

“First is our response to the recession: the Recovery Act and financial stabilization that are necessary to restore growth and increase our revenues. I firmly believe that we should not incur debt as a course of action. But I also believe that government spending in response to this recession is the least bad option, because when consumers and businesses are afraid to spend, only government has the resources to inject demand into our economy. Still, however you feel about the Recovery Act, it is clear that recent deficit spending makes restraint even more important in the months and years to come.

“Our second response came in the budget resolution Congress passed last week. That budget cuts our deficit by nearly two-thirds, from 10.5% of GDP in 2009 to 3% of GDP in 2014. And it makes clear our commitment to statutory PAYGO—the principle that our government must pay for what it buys. Pay-as-you-go was essential to the Clinton Administration’s surplus, and it is essential today. Speaker Pelosi and I have insisted that the House will not consider any bills on middle-income tax cuts, the estate tax, AMT relief, or the sustainable growth rate in the Medicare program unless they include statutory PAYGO, they are fully offset, or statutory PAYGO has already been enacted.

“I know that many of you here have reservations about the decision to change the baseline to assume current policies on taxes and physician payments are extended without offsets as part of the agreement for moving statutory PAYGO forward. I share that concern, and would have fought to maintain the current baseline if I thought there was the will in the House or Senate or administration to make the choices necessary to enforce that position. Unfortunately, I have concluded that is not the case and trying to enforce a position that is not politically sustainable undermines the credibility of budget enforcement, much as was the case with the discretionary spending limits in the late 1990s that were routinely violated.

“I believe that enforcing a more realistic baseline with a strengthened PAYGO regime will impose greater discipline than would be the case if we maintained the current law baseline on paper but routinely waived PAYGO. But whether or not you agree with our decision, I would hope that all of you who care about fiscal discipline will work with me to strictly enforce this revised PAYGO regime and resist proposals that would result in costs beyond current policies.

“Our third response is, by far, the most important. That is the structural response—the actions we must take to confront the imbalance between our commitments and our revenues that are driving us deeper into debt every year. We will not bring our debt down if we do not reform entitlements and rein in the rapidly rising cost of health care.

“I am glad that we have a President who sees it that way. His talk of a ‘grand bargain’ that encompasses issues from entitlements to health care to taxes shows a clear understanding of the tradeoffs and sacrifices that will be necessary. Given the gravity of our situation, we cannot afford to take any options off of the table, either on the spending or the revenue side.

“Of our entitlement programs, I believe we would have the easiest challenge in reforming Social Security. Here, the options are well and widely understood. We can bring in more revenues. We can restrain the growth of benefits, particularly for higher-income workers, while we strengthen the safety net for lower-income workers. And/or we can raise the retirement age, recognizing that our life expectancy is significantly higher today. What is missing here is not ideas—it is political will.

“The bipartisan trust we need for compromise has been sorely damaged. And both sides are guilty—Democrats for using Social Security as the ‘third rail’ for political advantage, and Republicans for walking away from the table at the first mention of raising revenues. Neither side has been willing to put forward realistic, effective alternatives.

“Even if we are going to fix just Social Security, we need the kind of trust that existed between leaders like Ronald Reagan and Tip O’Neill when they reformed Social Security in 1983 and our tax code in 1986. And right now, we have a rare opportunity to build that trust. At the White House Fiscal Summit in February, we heard constructive comments on Social Security from leaders as diverse as John Boehner and Dick Durbin—and we saw that stakeholders from the AARP to the National Federation of Independent Businesses understand the need for compromise, as well.

“That is not to say that reforming Social Security should take priority over reforming health care—simply that we must, and should, deal with multiple challenges at once, and that the Republican interest in working constructively on Social Security gives us a real opening for progress, along with an immediate chance to take pressure off of the budget.

“To be honest, it will be much more difficult to deal with the entitlements related to health care: Medicare and Medicaid. But it is absolutely clear that health care reform is the central part of entitlement reform.

“We have pledged that, in the health care reform bill we will debate this session, we will pay for expanded access, so that health care reform does not add to the short-term deficit. But that is not enough. It is imperative that we slow the growth of health care spending over the long term. It’s important to remember that the American health care system is the most expensive per-capita in the world, and, compared to the rest of the developed world, it is not buying us better health.

“The health care debate must be about both controlling costs and expanding access. In fact, a focus on controlling costs is what will help us pass health care reform. But while expanded access will on its own help reduce unnecessary expenses, it isn’t a magic bullet for controlling costs; other options for doing so include electronic medical records and comparative effectiveness research. But reforming health care will also take many more long-term choices. Discussing the problem is important—but what we need from you even more is your willingness to actively support those who are willing to make those tough choices.

“The political challenges on Social Security, Medicare, and Medicaid are extraordinary. So I think it’s very possible that finding a solution will demand an extraordinary process. Some Members of Congress, including Congressmen Cooper and Wolf, have called for a Fiscal Future Commission—composed of Members of Congress and the Administration, experts outside the government, and those who would be directly affected by entitlement reform—which would propose solutions and send them to Congress for a vote. I think they make a strong case. A Fiscal Future Commission would help protect that process from the political attacks that have derailed it in the past. This is also a function that could be handled by the President’s Economic Recovery Advisory Board, chaired by Paul Volcker.

“Some have argued that creating a Commission would mean taking these vital issues out of the political process. But the truth is that Congress has a long history of inaction on long-term fiscal issues. I do think Congress could play an important role by debating and amending the Commission’s proposed solutions, provided that the bottom line stays the same. And even if a Commission never gets off the ground, the mere possibility of a Commission could spur Congress to act, just as the threat of a Balanced Budget Amendment encouraged Congress and the Clinton Administration to balance the budget on their own.

“So that, in my view, is the extraordinary work that we can no longer ignore. President Obama said that we have been called to govern in difficult times—and so let me close with the two things it will take for us to rise to these times and govern well.

“First, both parties must work together in good faith. Bipartisan compromise will build public confidence that the solutions we agree on are reasonable, and it will prevent either party from exploiting those solutions for political advantage. Quite simply, we have to understand one another’s fears—Republican fears that Democrats will merely raise revenues and then spend them on new entitlements, and Democratic fears that reform will undermine the security of those in need and weaken support for popular programs. Those fears are understandable—but they should be outweighed by the fear of what will happen if we fail, if our debts overwhelm us, and if the fiscal meltdown comes. Republicans fear that taxes will go through the roof and think that families and small businesses will suffer. Democrats fear that the programs we value will be slashed, and that those we most want to protect—the weakest, the least powerful—will suffer the most. Compromising now is the only way out of that worst-case scenario.

“But that shared purpose isn’t enough. Second, and as importantly, we need to engage the public. Our political system is built to encourage easy decisions. If the incentives are going to change, the voters have to be the ones to change them. So to those of us who understand the danger clearly: Let’s explain the stakes. Let’s make it clear to anyone who will listen that fiscal issues are moral issues, that the kind of lives our children will lead are at stake. And let us seize this rare and precious moment in time.”